Why we like HCA Healthcare’s (NYSE:HCA) returns

When we want to find a potential multi-bagger, there are often underlying trends that can provide clues. In a perfect world, we would want a company to invest more capital in its business and, ideally, the returns generated from that capital also increase. Essentially, this means that a company has profitable initiatives that it can continue to reinvest in, which is a characteristic of a compounding machine. And it is against this backdrop that we see the trends we are currently seeing HCA Healthcare (NYSE:HCA) look very promising, so let’s take a look.

Understand return on capital employed (ROCE).

Just to clarify in case you’re not sure, ROCE is a measure used to evaluate how much pre-tax income (as a percentage) a company earns from the capital invested in its business. Analysts use this formula to calculate for HCA Healthcare:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.24 = $10 billion ÷ ($57 billion – $14 billion) (Based on the last twelve months ended June 2024).

Therefore, HCA Healthcare has an ROCE of 24%. That’s a fantastic return, and what’s more, it exceeds the average of 10% achieved by companies in a similar industry.

Check out our latest analysis for HCA Healthcare

Above you can see how HCA Healthcare’s current ROCE compares to its past returns on capital, but there’s only so much you can tell from the past. If you are interested, you can see the analyst forecasts in our free Analyst report for HCA Healthcare.

How do returns develop?

HCA Healthcare did not disappoint with its ROCE growth. A look at the data shows that the ROCE generated has increased by 23% over the last five years, even though the capital employed in the company has remained relatively constant. Basically, with the same amount of capital, the company generates higher returns and this is evidence that the efficiency of the company is improved. In this regard, the company is doing well, and it’s worth examining what the management team has planned for its long-term growth prospects.

Our opinion on HCA Healthcare’s ROCE

In summary, HCA Healthcare is generating higher returns with the same amount of capital, and that’s impressive. With the stock delivering an incredible 238% return to shareholders over the last five years, it looks like investors are recognizing these changes. However, we still believe that the company requires further due diligence given its promising fundamentals.

Something else to note: We discovered 2 warning signs Working with and understanding HCA Healthcare should be part of your investment process.

The story continues

If you want to look for more stocks that have delivered high returns, check this out free List of stocks with solid balance sheets that also generate high returns on equity.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.